TD Ameritrade Acquires Scottrade, Moody's Upgrades Ratings

On Monday, TD Ameritrade Holding Corporation (TO:TD) announced closing the acquisition of Scottrade Financial Services, Inc. The stock-cash deal was priced at about $4.4 billion.

TD Ameritrade acquired Scottrade by paying $1.3 billion in cash and about $1.7 billion worth shares, including $400 million issued to TD Bank, N.A., a subsidiary of The Toronto-Dominion Bank (TO:TD) . Notably, per the deal, prior to closing, TD Bank bought Scottrade bank for about $1.4 billion in cash.

“Now the hard work really begins,” said Tim Hockey, president and chief executive officer of TD Ameritrade. “Scottrade is so well known for outstanding client care – a credit to the culture that Rodger Riney and thousands of Scottrade employees have built over the last 37 years. It’s on us to continue that tradition. We want their clients to know that talented people are focused on making the transition as seamless as possible. We can’t wait to share what we love best about TD Ameritrade so they can continue investing in the things that matter most to them.”

Terms of the Deal

Through an integration team, TD Ameritrade will transfer all accounts, including brokerage accounts, and the final conversion is likely to complete in second-quarter fiscal 2018 (ends on Mar 31, 2018). However, till the conversion, Scottrade will continue to serve its clients as usual.

“We’re 100 percent focused on a smooth transition, paying special attention to the service all clients receive today – and making plans to enhance it further in the future,” Hockey noted. “That means being clear and transparent, and making sure clients know what to expect,” he further added.

Barclays (LON:BARC) Capital Inc. — a subsidiary of Barclays PLC (NYSE:BCS) — acted as financial advisor for TD Ameritrade, while Goldman, Sachs & Co., operating as a subsidiary of The Goldman Sachs Group, Inc. (NYSE:GS) , acted as a financial advisor to Scottrade.

Benefits of the Deal

The acquisition significantly increased TD Ameritrade’s scale to retail business and expands its leadership in trading. Further, it is anticipated to be accretive to the brokerage firm’s EPS in double-digit figure. Moreover, the firm projects annual cost savings from the deal over the long run.

The newly-combined entity will cater its services to about 11 million client accounts, having $1.1 trillion in assets.

Other Development

Following the acquisition, Moody's Investors Service, a rating arm of Moody's Corporation (MCO), upgraded long-term issuer and senior unsecured debt rating of TD Ameritrade to A2 from A3. However, the rating firm’s outlook for the company remains “stable”.

The upgrade comes on the heels of enhancement in credit profile of TD Ameritrade backed by the acquisition.

TD Ameritrade currently carries a Zacks Rank #3 (Hold). Shares of this stock gained 36.4% over the last year compared with 30.5% growth recorded by the industry. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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